All Forum Posts by: Brett Pirie

@Andrew Johnson thanks for your helpful response.  I meet all three of the criteria you mentioned so I will be sure to highlight that the next time we approach a lender.  I can see the world shrinking when working with local banks and I won't be surprised if we find one who already knows about the property.  

@Chris Ellis we asked why we were denied so we could learn from it, but they were not very helpful.  From their point of view, I can understand not wanting to spend time on a newbie with a small loan (for them).  We are on the very small side of commercial loans, we only need to borrow about $200k.  

@Troy Peters I found BP through the FIRE (Financially Independent/Retire Early) world of mrmoneymustache.com, madfientist.com and the book Your Money or Your Life which has shaped the way I view money.  These suggestions will probably come across as a little harsh, but here it goes. 

Sell the cars and buy two reasonably priced cars in cash.  I will never understand going $60k in debt on something that is guaranteed to depreciate.  

If you're not already, start tracking your spending.  Mint.com works great for this.  Once you see exactly where your money is going each month, it's much easier to make changes.  

It sounds like you'll be able to pay off the credit cards soon with the new project, awesome!  

Next, save up at least 6 months of living expenses.  This is your emergency fund which is especially necessary in your line of work where you get paid infrequently.  You will feel much better knowing you can go six months no problem without getting paid at all.  You will be able ride out rocky patches without wondering if you should sell the house.  Don't touch this fund unless necessary, it's for emergencies only.  

The more you trim your spending, the less you have to save for your emergency fund and the faster the fund grows.  These are just example numbers, you can plug in your own.  If you're spending $10k a month you will need an emergency fund of $60k.  If you can save $1k/month it will take you 60 months to get to the point where you will feel comfortable.  But, say you can trim your spending down to $6k/month.  Now you have $4k/month plus the $1k/month (that you were saving in the $10k/month example) which gives you $5k/month going into your emergency fund.  With a spending rate of $6k/month you only need an emergency fund of $36k.  At a savings rate of $5/month you will have an adequate emergency fund in just over 7 months.  Trimming you spending has a double effect: the total amount you need to save is less and your savings rate increases. 

You're in a great position to set yourself and your family up for being debt free and able to go a few months before getting paid.  Best of luck! 

@Tim Milazzo thank you for your detailed response.  This is exactly the info I was looking for and right at my level.  Somehow your response slipped though the cracks and I just now saw it.  

I feel better now that I can see a path forward and know what I have to do.  I just finished writing a business plan for a totally different type of project, so I have some fresh skills to put to use.  

It makes sense why lenders may be concerned with house hacking a 5 unit.  I will make sure to detail in the business plan that the cash flow is still positive with only 4 of the 5 units rented (although just barely), that we will be living in it for one year and after that it will be fully rented, and will show where our cash reserves are kept.  

There is a chance we can do an owner financing deal which would help us get over the hump of proving as new landlords that we can run the business.  After a year or two we will no longer be living there and will have a track record to show potential lenders.  

@Brian Gibbons sticking with your post and reading it through was totally worth it!  I'll be saving it as others are doing.  Now it's time to find my own Glenn.  

@Jorge Garifuna I'm so glad I stumbled upon this post!  Thanks for compiling all the books, great work.  

I was wondering if it was just me that thought tons of guests mentioned RDPD, turns out 43% of guests have mentioned it.  

Lately, I've been hearing lots about The One Thing, so that's up next for me.  

@Joshua Hollandsworth I know what you mean about CapEx making you second guess everything! Over the course of 10 years you'll have a very good idea of what CapEx is really costing you per month. Until then, the best we can do is make estimates on what to set aside. It sounds like you're thinking everything through. Having a large reserve stash will probably help you sleep at night knowing that if an AC goes out this summer you already have the money set aside.

@Joshua Hollandsworth that's great you found the spreadsheet!  If the numbers aren't working, try bringing down your offering price until the cash flow numbers look good for you.  I'm just getting started as well, so hopefully some more experienced investors will stop buy to offer their opinion.  I think Brandon talks about how he'll analyze 100 properties, put offers on 10, and have 1 accepted (I don't remember the exact numbers).  The point is, keep looking to find properties that meet your numbers.  

I'm using 5% vacancy, 5% maintenance/repairs, and 10% PM as well.  Those numbers are probably low, especially for an older building.  I've seen 8.3% (1 month) vacancy and 10% M/R used frequently.  

Would writing a business plan with detailed financials help in getting a commercial loan?  

We are just staring out and much of the smart advice is to start out with a smaller property before moving on to multi-family.  We didn't plan to start this way, but we found at a 5 unit place where the cash flow numbers are looking good.  We plan to house hack it for 1-2 years and then hold it.  We're learning as we go, just jumping into things and our first commercial loan application was denied.  We don't have a history for lenders to look at, so is there anything else we can do to improve our chances of being accepted?  Would lenders like to see a well written business plan with detailed financials?  

@Joshua Hollandsworth I agree with @Account Closed, there is a reason experienced investors suggest setting aside higher percentages, they have real world experience.  I've heard to always include property management in your cash flow because one day you may want to step away from self managing and it sure would be a problem if you hadn't planned ahead.  

Do some research on CapEx, it can be an issue with lower value houses. The cost of a new roof is a much higher percentage of rental income on lower value houses than higher ones. Using a CapEx percentage seems to be a good way to make a fist pass at analyzing the property to decide if further analysis is worth while. After that you may want to get a more accurate number. I found a spreadsheet on BP that lists out all the items in CapEx and their typical life spans, like roofs, exterior paint, refrigerators, stoves, etc.